Question

Take the role of either a lender or a customer and identify yourself. You are negotiating the terms of a $500,000 loan for a new piece of equipment. What type of loan (amortization style), interest rate, and term would you negotiate? Describe why you believe these terms are important and how you chose them.

Answer 1

I will be taking the role of the lender and I will be judging the creditworthiness of the customer who is trying to to take the loan.

I would be trying to fix various conditions in association with loans-

A. I will be trying to place regular amortization mostly because it will secure the lender to a large extent as both the interest and the principal payments are being recovered regularly

B. I will be trying to set interest rate in accordance with the current interest rate and the expected condition in the economy in the future so I will be trying to place the interested which will not be hurting the the future benefits

C. I will be trying to look upon the credit worthiness and the integrity of the customer and the capital which he is putting into the business and I will be trying to put nominal rate of interest for those customers who are having a very high creditworthiness and I will be trying to place additional conditions on the loan if I will be finding the level of creditworthiness to be lower on the part of the customer.I will also try to secure the loan with the Asset.

These terms are important because these are going to protect the lender against any kind of uncertainty in the market and it will provide them with required security at interest rate fluctuations and other default which are associated.